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Joint auto venture to grow local jobs

baicThe Industrial Development Corporation has signed a R12-billion agreement with Beijing Automotive International Corporation to build a car manufacturing plant in South Africa.

With a capacity of producing 100 000 vehicles a year, the project would see the creation of some 10 000 direct and indirect jobs.

The BAIC manufacturing plant is expected to begin production by the end of 2017.

While the location of the plant has not been decided, it is expected that it will be based in the Eastern Cape. The car manufacturer plans to export about two-thirds of its production, so access to harbours is critical.

In addition, the Eastern Cape is already home to many of the key players in the automotive sector:  General Motors, Volkswagen and Mercedes-Benz have plants in East London and Port Elizabeth and Ford has an engine plant in the region.

Alongside these companies are a host of businesses that are able to supply components for the vehicles.

While the fine details have not yet been finalised, the planned investment will see the IDC holding shares of between 20% and 35% in the project.

The IDC and BAIC signed a memorandum of understanding in early December, with a forecast that production could begin within the next two to three years. The project will be rolled out in phases, with the plant having an initial capacity of up to 50 000 units a year, pushing it up to 100 000 units within a year.

The agreement was one of 26 signed during a State Visit to South Africa by Chinese president Xi Jinping in early December, ahead of the Forum for China-Africa Co-operation summit.

The joint venture will see BAIC producing passenger vehicles, sport utility vehicles, pick-up trucks and multipurpose vehicles.

Setting up the original equipment manufacturer facility will create 2 500 direct jobs, according to IDC spokesperson, Mandla Mpangase.

However, with a multiplier effect of five, job creation in the supply chain of locally produced components and other services, a further 7 500 new job opportunities will be created, he added.

Currently local content for existing projects ranges from 40% to 70%. “Taking this into account, a similarly-sized new original equipment manufacturer could result in an estimated 10 000 decent jobs being created in the South African economy.”

Growing the economy

The automotive sector contributes between 6% and 7% to the country’s Gross Domestic Product. “This facility could push this figure to 8% of GDP,” Mpangase said. “The impact of the exchange rate would then further push the contribution to GDP upwards if significant units are exported.”

South Africa’s existing major manufacturers are all wholly foreign-owned. However, the IDC intends to change that.

IDC CEO Geoffrey Qhena said in an interview following the signing of the memorandum of understanding, that the corporation could eventually sell its stake in the project. "We take a long-term view of investments, but the intention is not to hold these shares forever. This could be an opportunity for South Africans to own part of a vehicle manufacturer."

In keeping with the IDC’s emphasis on transforming the industrial landscape, the corporation will actively encourage more black industrialists and entrepreneurs to get involved in the components supply chain.

Because locally based executives report to global shareholders, they are very often limited in implementing transformative decisions. The IDC, however, as a shareholder in the new company can broaden black economic participation.

"I would hope that once we have shown what can be done, others will follow," Qhena said.

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